The U.S. dollar recovered from a one-week low on Thursday, supported by U.S. Treasury yields holding above 1.34% in a quiet market.
The main topic at the moment is the Federal Reserve’s annual Jackson Hole conference. The annual conference kicks off later in the day in virtual format. The most important part of the conference is Jerome Powell’s speech on Friday. Fed Chair Powell is expected to signal when the Fed could start unwinding its massive monetary stimulus.
Interestingly, bond markets sold off heavily one day earlier, partly on the strength of investors hedging their bets ahead of Jerome Powell’s speech, taking 10-year Treasury yields to almost two-week highs.
The dollar index rose 0.12% to 92.933 after declining to 92.801 for the first time since August 17. Against the euro, the dollar index was at $1.1761, near a one-week low of $1.1775 hit on Wednesday.
Markets are evaluating how the Federal Reserve will react to signs inflation could be less transitory than it flagged and whether the Fed will stick to its new policy framework of letting inflation run hot.
Signals of a taper starting in 2021 lifted the index to a 9-1/2 -month high of 93.734 last Friday. However, that was before Dallas Fed President Robert Kaplan said he may have to change his view if the pandemic slows economic growth materially. Kaplan wants to provide less support for the country’s economy, but he is also ready to alter his position.
Dollar, yen, and won
The U.S. dollar fell 0.15% to the yen. But the pair stated earlier is meandering near the center of its trading range since early July.
More and more central banks are exiting or contemplating exiting from ultra-easy accommodative policies. Last week, Sri Lanka became the first country in the region to raise interest rates.
On Thursday, South Korea’s central bank decided to increase its base rate of interest from 0.5% to 0.75%. The won was unable to keep initial gains and fell 0.6%.
The Bank of Korea wants to curb the country’s household debt and home prices, which soared in recent months. For the first time in three years, the central bank raised its main interest rate. On the one hand, the central bank has to support the country’s economy. On the other hand, the Bank of Korea has to deal with various risk factors.